Investments are essential for wealth creation. It’s
not enough to leave your cash in the bank, where you will get negligible
monthly interests. Invest in real estate today. It is something you have to do
at some point before you retire, if you want to be comfortable financially. Why
not give yourself a good head start?
If you are looking for a way
to invest your savings, why not consider real estate? Such investments are
always very lucrative. If you are in doubt, just look up any of the wealthiest
people in Nigeria, or the world; you will find one form of real estate
investment or the other in their portfolio.
Today, we are going to look
at how you can make your first investment in real estate and earn some serious
profit, regardless of the amount of money you want to put in.
What is real estate?
Real estate is property
comprised of land and any structure(s) or natural resource on it, including
water bodies and mineral deposits, as well as any flora or fauna.
Based on its use, real estate can be grouped into three broad categories:
§ Industrial properties, e.g. factories and mines.
§ Commercial properties, e.g. office buildings, retail store
buildings, and warehouses.
§ Residential properties, e.g. undeveloped land, condominiums,
and private residences.
Investment opportunities in real estate
Buying a house or building
one is not the only way you can make a real estate investment. The market has
lots of opportunities. Here are some of them:
1. Real Estate Investment Trusts (REITs):
This
is one of the easiest ways to make real estate investments without actually
acquiring a physical property. REITs are regulated by the Securities and Exchange Commission (SEC). They are
a form of collective investment scheme, which pools funds from investors and
use them to acquire income-generating real estate.
The portfolio of underlying
assets is managed by a professional whose job is to maximize your returns. With
REITs, you hold an indirect interest in real estate on a flow-through basis,
which means that you hold the property as if it were a direct investment.
REITs
are traded on the Nigerian Stock Exchange (NSE).
To buy one, you have to go through your stock broker. It’s just like buying or
selling shares.
REITs are a solid investment
stock that can earn you regular income. The benefits include the following:
- Requires no minimum investment.
- Offers tax advantages.
- It’s a highly liquid way to invest in real estate. You won’t
need a realtor to cash out your investment.
- REITs pay high yields in the form of dividends.
- Provides you the opportunity to share in non-residential properties
like malls, industries, and hotels.
2. Land flipping
Another great way to invest
is to buy land and sell it at a higher price. It is particularly profitable
when you buy in a rapidly developing area, in which case you can make up to
300% in profits within a few months, or years, as the case may be.
You can start small by buying
just a plot. Or if you have enough capital, buy as much land as you can and
keep selling all year round.
While acquiring lands, keep the following in mind:
§ Buy in areas that are rapidly developing if you want to sell within
a couple of months. Some areas are faster than others.
§ Ensure you obtain all the documents for the land that show you are
buying from the legitimate owner. The documents should include a Certificate of
Occupancy or a Governor’s consent. Ensure that you don’t get mixed up in land
issues. Acquire lands with the appropriate land titles.
Benefits
• Low or zero maintenance
costs.
• Ease of sale
• High profits
3. Become a real estate agent
This is a good option if you
don’t have the capital to make an investment. You can simply offer your
services to property owners who are looking for a buyer.
Becoming an agent means you
get a commission after you find a buyer for the property. The common rate is
10%. So let’s say you find a buyer for a 40 million naira property, you stand
to get a commission of 4 million naira.
To become a successful agent,
you need to possess good networking skills in order to locate buyers and
sellers. Here are some of the roles you’d have to play:
§ List the property to the public through notices, banners, fliers,
and so on. But things have become very easy in the 21st century, in which case,
advertising on the internet is the easiest and cheapest method you can use.
§ Be readily available to answer any questions buyers may have.
§ Take buyers to see the property (property inspection) and negotiate
prices on behalf of the seller.
§ Screen the buyers to make sure that they are qualified to buy the
property.
Benefits.
- Grow your network.
- Great earning potential.
- Little or no investment capital required
4. Open space leasing
In this scenario, you buy
land in a good location. While you wait for the property value to rise, earn
monthly fees by leasing the land to people for temporary use. For instance, you
can lease it to a church, mechanics or car wash, or other businesses that can
construct a makeshift structure that will be easily dismantled when you are
ready to sell.
Benefits
• Extra monthly profits
before actual land sale, etc.
5. Property development
Property development requires
a huge capital investment. It involves acquiring depreciated properties that
you can renovate and rent or sell at a very high profit margin. As with any
real estate investment, a good location is crucial if you want to make
reasonable profits.
Before you go ahead to invest
in property development, you have to make sure that the development costs will
be far outweighed by the asking price of the property when the renovation is
done. So if you spend like 2million naira in renovations, make sure you can
sell the property for at least 3 or 4 million naira.
Listed below is one of the benefits:
• Earn a higher profit than
when you buy and sell undeveloped land.
6. Franchising
Franchising is a brilliant
way to acquire and hold land in different fast growing locations. It however
requires considerable capital.
It’s as simple as when you
acquire land and use it to establish a business, such as a fast food
restaurant. You then buy land in various other locations, build your structures
and find franchisees who will manage the restaurants on your behalf.
It may seem that brands, such
as Mr. Biggs, McDonalds, Chicken Republic, and many others that exist today are
only involved in the fast food business. But real estate acquisition is a major
part of it. These lands quickly appreciate in value over time.
• Run a sustainable business
while acquiring high value real estate.
• Own land in several major locations across the country.
7. Build or purchase rental properties
Investing in rental
properties is one way to keep earning for life. As a landlord, you receive
monthly or yearly income after you build or buy properties and rent them out to
tenants. You’d have to regularly maintain the building to keep it in good
shape, so that you can attract new tenants or keep up with the competition from
other landlords in the neighborhood.
You’d also have to find out
the price other landlords in the area charge on rent so that you can fix a
reasonable price. Over time, your property will appreciate in value, especially
if you are in an area of high demand.
The biggest difference
between investing in a rental property and other types of real estate
investments is the time and effort it demands, especially if you accept bad
tenants who damage your property or delay rent payments. If you are not in a
good location or don’t invest in maintenance, you face the risk of not
attracting any tenants at all.
Benefits includes Earning passive income for
the rest of your life.
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